Peter Gulia

Perhaps a plan’s governing documents might not preclude an individual from specifying her elective-deferral election with conditions beyond those customary regarding an employee’s wages to refer to one or more business conditions. For example, how about: . . . ? My elective deferral is the greatest amount that: (i) does not exceed the IRC § 402(g) limit (with the applicable IRC § 414(v) extension) and, counting the employer’s nonelective contribution, does not exceed the IRC § 415(c) limit; (ii) does not result in any contribution to the plan that otherwise would be deductible under IRC § 404 being nondeductible for 2024; (iii) is limited such that Supportable Inc. does not breach any debt covenant; (iv) is limited such that Supportable Inc.’s net profit for 2024 is no less than $10,000; and (v) is limited such that, immediately after payment into the plan’s trust, Supportable Inc.’s cash-on-hand is no less than $5,000. Could we defend an election like that as determinable and as decided before the year closed? This is not advice to anyone.

To think about how to classify a fee or other expense, one would want to know more about the plan and about what service was provided. Is the plan a health plan? A disability plan? A life insurance plan? Some other kind of welfare benefit? Or is the plan a defined-benefit pension plan? Or an individual-account retirement plan? Was the service about a health insurance contract? A stop-loss contract? Disability insurance? Life insurance? Fiduciary liability insurance? Some other casualty insurance? A fixed annuity contract? A variable annuity contract? And was the service truly advice to the plan? Or was it a service to an issuer or intermediary of an insurance contract?

Just curious: Does Form 5500 software include any programming that sets a presumptive path for reporting based on how an amount is coded for Schedule C? Is there a logical-consistency check between Schedule C and Schedule H?

ERISA § 204(h)(8)(A) defines an “applicable individual” as a participant or alternate payee “whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan amendment.” https://uscode.house.gov/view.xhtml?req=(title:29%20section:1054%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1054)&f=treesort&edition=prelim&num=0&jumpTo=true

Consider also that the Internal Revenue Service would not tax-disqualify a plan for a failure to administer the plan according to the written plan if one administers the plan according to the documents as later changed by a remedial amendment the IRS recognizes. About § 401(a)(9)’s ten-year period regarding a beneficiary who is not an eligible designated beneficiary, for a participant’s minor child the ten-year period does not begin until “the date the individual reaches majority”, which the Treasury department interprets as 21 (even while recognizing that only one of the 50 States has an age of majority that late). minimum-distribution rules proposed FR 2022-02522.pdf

Are both reports for the same period? And even if they are, consider that one report's item might be on an accrual basis of accounting while the other report's similar item refers to an amount actually paid or received. Further, seemingly similar items might not be exactly the same in a particular report's query or instructions.

After we left off this discussion, another state's courts reason against a during-marriage domestic-relations order. Wallace v. Wildensee, 990 N.W.2d 637, 2023 Empl. Benefits Cas. (BL) ¶ 154,219 (Iowa 2023) (When there is no divorce or separate-maintenance proceeding, a court lacks power to issue a domestic-relations order.).

Why is the plan’s administrator so eager to pay? The facts and circumstances you describe suggest that no one submitted a claim. Even if the plan would provide an involuntary minimum distribution because the beneficiary’s required beginning date is a few days away (or the plan otherwise provides an involuntary distribution), an administrator might consider it prudent not to pay if the payee’s identity is not determined. If an administrator needs or wants to put in an effort to identify a minor’s payee, an administrator might consider checking records of the court in which the decedent’s will likely would be admitted to probate and, if different, records of the court that has jurisdiction to appoint the minor’s conservator, guardian, or other fiduciary. A search of publicly available records might be logically consistent, by analogy, with the IRS’s internal guidance directing an EP examiner not to challenge a plan’s tax-qualified treatment for failing to pay a required minimum distribution when the plan’s administrator has not located the distributee. This is not advice to anyone.

Based on how much strength a tax position needs to get the taxpayer an excuse or relief from a tax-reporting penalty, tax practice has developed a special lingo with term-of-art phrases to describe the relative strength of interpretations of tax law. See my table “How strong is this interpretation of tax law?” attached below. One of those term-of-art descriptors—“more likely than not”—applies in generally accepted accounting principles for accounting for income taxes. A less-confident “substantial authority” often lets a taxpayer assert a tax-return position without a particular disclosure that the IRS might view the tax law differently. (Using Belgarath’s illustration, if a practitioner doesn’t nudge her thinking from 50/50 to 51/49, one would write a substantial-authority opinion. That might be enough to omit a particular disclosure from a tax return, but might not be enough to omit an accrual from financial statements.) A practitioner who renders written advice often provides a reasoned opinion that at least alludes to, and often describes, other possible interpretations. Likewise, it’s often useful to present all or some possible interpretations and explain the strengths, weaknesses, and consequences of each choice. This note is about tax advice a practitioner provides to her client that or who is the taxpayer. An opinion or advice that a nonclient third person may read is a different practice. And a lawyer’s advice to an employee-benefit plan’s fiduciary often is burdened by recognizing that an ERISA-governed plan’s fiduciary—and, depending on State law and other circumstances, a governmental plan’s or church plan’s fiduciary—cannot invoke the evidence-law privilege for lawyer-client communications against the participants and beneficiaries of the fiduciary relation. How strong is this interpretation of tax law.pdf

Your inquirer seems to have a good impulse. Regarding a pooled-employer plan, an adopting employer has fiduciary responsibility (at least) for its selection and monitoring of not only the pooled plan provider but also all persons that are a named fiduciary of the PEP, including the PEP’s § 3(38) investment manager. An employer should not use its fiduciary discretion about whether to adopt a PEP to cause itself to get compensation as the PEP’s investment manager. To avoid self-dealing, the conflicted fiduciary might engage an independent fiduciary to decide whether the employer should adopt the PEP, meet the conditions of a prohibited-transaction exemption, or avoid the compensation to the extent of the plan assets (or other portion of the fee) attributable to the adopting employer’s subplan. If a part of the solution is avoiding the compensation, the investment manager and the pooled plan provider might resolve and document their arrangements. Further, avoiding self-dealing about the investment manager’s fee is not the only conflict such a conflicted fiduciary needs to manage. This is not advice to anyone.

If you click on the hyperlink above to read the statute, you’ll see that a domestic relation order (a subset of the defined term qualified domestic relation order) may “relate[] to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant[.]” But a lawyer drafting an order one hopes the retirement plan’s administrator will decide is a QDRO should read carefully the plan’s governing documents so that the order one proposes to a domestic-relations court meets all conditions of ERISA § 206(d)(3), including that the order “does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan[.]” For one example, an order that purports to direct an ERISA-governed individual-account (defined-contribution) retirement plan to pay an alternate payee an amount each month would not be a QDRO if the plan does not provide periodic payments. If a might-be alternate payee’s lawyer, paralegal, limited license legal technician, or other adviser lacks expertise about QDROs, that person might engage help from a lawyer or other practitioner who has the needed knowledge and skills.

For many service businesses, the professional might keep her corporation or other business organization alive at least as long as it might be desired to receive periodic payments from the sale of goodwill and perhaps other business assets, or to receive retired-partner payments, and to receive expert-witness or other consulting fees.

Consider also that bankruptcy exclusions and exemptions might not be the only kind of protection from creditors an inquirer desires. An inquirer might want her lawyer’s advice about other protections, and about before-bankruptcy and beyond-bankruptcy differences between an employment-based plan and an Individual Retirement Account.

And ERISA § 206(d)(3) [compiled as 29 U.S.C. § 1056(d)(3)] includes a command that a retirement plan (if governed by part 2 of subtitle B of title I of the Employee Retirement Income Security Act of 1974) must provide for paying benefits according to a qualified domestic relations order. https://uscode.house.gov/view.xhtml?req=(title:29%20section:1056%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1056)&f=treesort&edition=prelim&num=0&jumpTo=true

If the plan provides participant-directed investment regarding that contribution: Might not following a participant’s investment direction be a breach of the fiduciary’s ERISA § 404(a)(1)(D) duty of obedience to the plan’s governing documents? Might not following a participant’s investment direction be a tax-qualification defect of not administering the plan according to the written plan? If the securities broker-dealer or a custodian associated with it had the money and the instructions and had an obligation to allocate the contribution among participants’ accounts, should it be the broker-dealer that ought to restore participants’ accounts at the broker-dealer’s expense?

Let’s restate jsample’s query: Is anyone aware of a plan’s administrator that interprets a beneficiary designation by looking to its description of the named person’s relation to the participant as a condition of the designation? For example, might an administrator interpret that a named person the beneficiary-designation document describes as the participant’s spouse is not the participant’s beneficiary if the named person was not or is not at a relevant time the participant’s spouse?

If a terminated plan's administrator can put this burden on the Pension Benefit Guaranty Corporation, is there a reason a plan's sponsor or administrator might prefer not to?

If the plan’s administrator considers that any slayer-rule provision or law might apply or that a claimant might argue that a slayer-rule law applies, the administrator might consider also possible interpretations of the plan’s governing-law provision (if any), exclusive-forum provision (if any), and arbitration provision (if any). If the administrator denies any claim, the administrator should follow its claims procedure and ERISA § 503. Even if the administrator later might seek an interpleader, an administrator might first follow its claims procedure and decide a claim (at least for as much as the administrator can decide). An interpleader does not undo a court’s deference to a plan administrator’s discretionary decisions, at least for those decisions made before the interpleader. For example, Alliant Techsystems, Inc. v. Marks, 465 F.3d 864, 39 Empl. Benefits Cas. (BL) 1428 (8th Cir. 2006); see also Metro. Life Ins. Co. v. Waddell, 697 F. App’x 989 (11th Cir. 2017) (recognizing, even on interpleader, deference to a claims administrator’s discretionary authority); Liss v. Fid. Emp. Servs. Co., 516 F. App’x 468, 56 Empl. Benefits Cas. (BL) 3042 (6th Cir. 2013) (deferring to the administrator’s discretionary finding on whether a participant had made a beneficiary designation). If circumstances surrounding a participant’s death suggest some possibility of a slayer situation, an administrator might balance competing interests. A fiduciary should not deprive a rightful beneficiary of the beneficiary’s right to a distribution. But a fiduciary also must exercise the care, skill, caution, and diligence ERISA § 404(a)(1) requires to protect the plan against paying or delivering a distribution to someone other than the rightful beneficiary. Some courts’ opinions suggest a plan’s administrator might breach a fiduciary duty if it approves a claim without considering whether the claimant is a slayer if: (i) a plan’s provision or applicable law deprives a slayer of the benefit claimed; (ii) the administrator or other decision-making fiduciary knew (or, had it used the care, skill, caution, and diligence required of the fiduciary, ought to have known) that the claimant is suspected of killing the participant or another person regarding whom the claimant would take; and (iii) a prudent fiduciary acting with the required care would delay its evaluation of the claim until it could find whether the claimant is a slayer. See, for example, First Nat’l Bank & Tr. Co. v. Stonebridge Life Ins. Co., 502 F. Supp. 2d 811, 815 (E.D. Ark. 2007); Atwater v. Nortel Networks, Inc., 388 F. Supp. 2d 610, 616 (M.D.N.C. 2005); Estate of Curtis v. Prudential Ins. Co., 839 F. Supp. 491, 495 (E.D. Mich. 1993). None of this is advice to anyone.

Your description suggests the plan might be intended as one Internal Revenue Code of 1986 § 457(b) describes as an eligible deferred compensation plan, and within those might be a plan established and maintained by a State or local government employer. If the plan is such a governmental plan, ERISA § 205 (29 U.S.C. § 1055) does not govern the plan. If the plan is such a governmental § 457(b) plan, a spouse’s-consent provision of the kind ERISA § 205 commands for a retirement plan governed by that section is not a condition for Federal income tax treatment as an eligible deferred compensation plan. Whether a particular governmental § 457(b) plan requires a spouse’s consent turns on State law and the particular plan’s provisions. That Empower’s form to claim a distribution includes an element for a spouse’s consent does not by itself mean that the particular plan requires a spouse’s consent. The circumstances you’ve described suggest the spouse needs his or her lawyer’s full advice and, likely, prompt action. This is not advice to anyone.

How about the other direction: Does anyone know of a Federal court’s written opinion that faults a plan’s administrator for not protecting a prospective alternate payee from the participant’s act?

The wife might want her lawyer’s advice about whether to pursue remedies more immediate than merely seeking an ordinary domestic-relations order. Consider also that, beyond delay in getting a DRO, such an order might have limited or no effect regarding an ERISA-governed retirement plan if the participant’s account was distributed before the plan’s administrator receives the order. This is not advice to anyone.

Your observations are right. That Amoco ignored Schoonmaker’s direction to redeem his interest in employer securities might have resulted in his account’s loss. Also, ignoring a direction to redeem shares or units of a US large-cap stock fund might have resulted in a somewhat similar loss. Depending on which measures and days one looks to, US large-cap stocks had around a 30% drop in mid-October 1987, when Amoco had applied a hold. After reading Schoonmaker (if not earlier), many practitioners—whether working for plans’ sponsors and administrators, or for service providers—wrote or edited plan-administration procedures, including QDRO procedures, to make clear that, even if the plan puts a waiting-for-a-DRO hold on a participant’s right to a distribution, a participant continues to direct investment. To do otherwise would make the plan’s administrator the fiduciary responsible for investing the participant’s account. If a participant remains responsible to direct investment for her account, such a participant’s loss is not about her account’s investments. Rather, it’s a delay of one’s opportunity to take a distribution or loan the plan would provide absent the QDRO procedure’s (or some other) hold. For reasons you’ve mentioned and some more, few participants might pursue that claim. And for those who pursue it, the harm from the delay might be slight, or might be difficult to prove. All that observed, legal, practical, and economic restraints on a liability exposure to affected participants is only one of many factors an administrator might consider in designing its QDRO procedure.

If the proposed alternate payee is homeless, here’s a detail one might tend to. An order is a QDRO only if the order, along with meeting other conditions, “clearly specifies . . . the name and mailing address of each alternate payee[.]” ERISA § 206(d)(3)(C)(i), 29 U.S.C. § 1056(d)(3)(C)(i). The address recited in an order need not be the address of a place where the alternate payee resides. It is enough that the address is a mailing address at which the alternate payee could receive mail. See Mattingly v. Hoge, 260 F. App’x 776 (6th Cir. Jan. 8, 2008). In my experience, such an address sometimes is an address of a lawyer, paralegal, certified public accountant, enrolled actuary, investment adviser, or other person who has the alternate payee’s authority to receive mail, at least regarding the domestic-relations-order matter. I’ve also seen such a method used when an alternate payee has a residence address but prefers that the information not become known to the participant.

Let’s thank QDROphile. Some points we get from that decision include these: The plan’s written procedure called for a hold only “upon receipt of a domestic relations order [and] while the issue of whether the domestic relations order is qualified is being determined[.]” Under “an unwritten practice [the administrator] would place a hold on Plan participants’ accounts once [the administrator] received confirmation from both parties to a divorce proceeding that (1) the divorce was final or a DRO was being sought, (2) the Plan would receive a QDRO soon[,] and (3) Plan assets would be a source of the QDRO payment.” The court rejected the administrator’s argument that the written procedure governed only what to do after the administrator has received a domestic-relations order. The court rejected the administrator’s argument that the unwritten practice was an interpretation of the written procedure. “[T]he [unwritten] practice is inconsistent with the written QDRO procedures.” “[T]he Amoco Plan’s informal hold practice violated the requirements of section 206(d)(3)(G)(ii) of ERISA[.]” “[T]he plaintiff is entitled to recover from the Plan [the losses that resulted from failing to follow the participant’s investment directions delivered after the administrator applied its informal hold].” One sentence of dictum might be argued to suggest that ERISA does not preclude providing a hold before the administrator has received a domestic relations order if that hold is expressly provided by the written procedure. But whatever that ambiguous sentence might mean, it was unnecessary to the decision and so is no part of any precedent. Schoonmaker v. Employee Savings Plan of Amoco Corp., 987 F.2d 410, 16 Empl. Benefits Cas. (BL) 1646 (7th Cir. Mar. 1, 1993).

Others with a different or differently nuanced view?